High Risk Loan Products
In spite of a recent credit boom that has swept the Chinese economy, some industry experts and economists have urged caution and increased scrutiny of the "shadow" credit products that are driving the surge. Now, the International Monetary Fund has lent its voice to the chorus saying that these "wealth management products" designed to funnel loans to local governments, property developers and other businesses unable to otherwise access credit are raising credit risk factors in the country.
"Over the last year, the use of these loan products has grown 50 percent."
Over the last year, the use of these loan products has grown 50 percent overall, hitting a high of $6 trillion. The IMF in a recent report identified that shadow products made up about 30 percent of China's gross domestic product, with high-risk products equaling almost $2.9 trillion.
The mechanism driving the recent surge of these high-risk shadow products is that they offer high yields – 11 percent to 14 percent, compared with 6 percent on loans and 3 percent to 4 percent on bonds according to Bloomberg – and can be recorded off balance sheets since they technically qualify as "investments" versus loans. The IMF pointed out that they are often used to circumvent requirements to set aside provisions against bad loans and allow balance sheets to showcase higher capital adequacy ratios.
China has been desperate to show economic stability and growth following several dramatic tumbles taken by the stock market. Indeed, according to the Financial Times, China's overall debt level has hit a record 240 percent of national GDP, making the risk offered by these shadow products palpable. James Daniel, the IMF's China mission chief, told the Financial Times that, while offering a short-term boost to economic prospects, healthy and sustainable growth for China depends on "the extent to which credit growth . . . is reined in."
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In spite of a recent credit boom that has swept the Chinese economy, some industry experts and economists have urged caution and increased scrutiny of the "shadow" credit products that are driving the surge. Now, the International Monetary Fund has lent its voice to the chorus saying that these "wealth management products" designed to funnel loans to local governments, property developers and other businesses unable to otherwise access credit are raising credit risk factors in the country.
"Over the last year, the use of these loan products has grown 50 percent."
Over the last year, the use of these loan products has grown 50 percent overall, hitting a high of $6 trillion. The IMF in a recent report identified that shadow products made up about 30 percent of China's gross domestic product, with high-risk products equaling almost $2.9 trillion.
The mechanism driving the recent surge of these high-risk shadow products is that they offer high yields – 11 percent to 14 percent, compared with 6 percent on loans and 3 percent to 4 percent on bonds according to Bloomberg – and can be recorded off balance sheets since they technically qualify as "investments" versus loans. The IMF pointed out that they are often used to circumvent requirements to set aside provisions against bad loans and allow balance sheets to showcase higher capital adequacy ratios.
China has been desperate to show economic stability and growth following several dramatic tumbles taken by the stock market. Indeed, according to the Financial Times, China's overall debt level has hit a record 240 percent of national GDP, making the risk offered by these shadow products palpable. James Daniel, the IMF's China mission chief, told the Financial Times that, while offering a short-term boost to economic prospects, healthy and sustainable growth for China depends on "the extent to which credit growth . . . is reined in."
[:es]In spite of a recent credit boom that has swept the Chinese economy, some industry experts and economists have urged caution and increased scrutiny of the "shadow" credit products that are driving the surge. Now, the International Monetary Fund has lent its voice to the chorus saying that these "wealth management products" designed to funnel loans to local governments, property developers and other businesses unable to otherwise access credit are raising credit risk factors in the country.
"Over the last year, the use of these loan products has grown 50 percent."
Over the last year, the use of these loan products has grown 50 percent overall, hitting a high of $6 trillion. The IMF in a recent report identified that shadow products made up about 30 percent of China's gross domestic product, with high-risk products equaling almost $2.9 trillion.
The mechanism driving the recent surge of these high-risk shadow products is that they offer high yields – 11 percent to 14 percent, compared with 6 percent on loans and 3 percent to 4 percent on bonds according to Bloomberg – and can be recorded off balance sheets since they technically qualify as "investments" versus loans. The IMF pointed out that they are often used to circumvent requirements to set aside provisions against bad loans and allow balance sheets to showcase higher capital adequacy ratios.
China has been desperate to show economic stability and growth following several dramatic tumbles taken by the stock market. Indeed, according to the Financial Times, China's overall debt level has hit a record 240 percent of national GDP, making the risk offered by these shadow products palpable. James Daniel, the IMF's China mission chief, told the Financial Times that, while offering a short-term boost to economic prospects, healthy and sustainable growth for China depends on "the extent to which credit growth . . . is reined in."
[:it]In spite of a recent credit boom that has swept the Chinese economy, some industry experts and economists have urged caution and increased scrutiny of the "shadow" credit products that are driving the surge. Now, the International Monetary Fund has lent its voice to the chorus saying that these "wealth management products" designed to funnel loans to local governments, property developers and other businesses unable to otherwise access credit are raising credit risk factors in the country.
"Over the last year, the use of these loan products has grown 50 percent."
Over the last year, the use of these loan products has grown 50 percent overall, hitting a high of $6 trillion. The IMF in a recent report identified that shadow products made up about 30 percent of China's gross domestic product, with high-risk products equaling almost $2.9 trillion.
The mechanism driving the recent surge of these high-risk shadow products is that they offer high yields – 11 percent to 14 percent, compared with 6 percent on loans and 3 percent to 4 percent on bonds according to Bloomberg – and can be recorded off balance sheets since they technically qualify as "investments" versus loans. The IMF pointed out that they are often used to circumvent requirements to set aside provisions against bad loans and allow balance sheets to showcase higher capital adequacy ratios.
China has been desperate to show economic stability and growth following several dramatic tumbles taken by the stock market. Indeed, according to the Financial Times, China's overall debt level has hit a record 240 percent of national GDP, making the risk offered by these shadow products palpable. James Daniel, the IMF's China mission chief, told the Financial Times that, while offering a short-term boost to economic prospects, healthy and sustainable growth for China depends on "the extent to which credit growth . . . is reined in."
[:tr]In spite of a recent credit boom that has swept the Chinese economy, some industry experts and economists have urged caution and increased scrutiny of the "shadow" credit products that are driving the surge. Now, the International Monetary Fund has lent its voice to the chorus saying that these "wealth management products" designed to funnel loans to local governments, property developers and other businesses unable to otherwise access credit are raising credit risk factors in the country.
"Over the last year, the use of these loan products has grown 50 percent."
Over the last year, the use of these loan products has grown 50 percent overall, hitting a high of $6 trillion. The IMF in a recent report identified that shadow products made up about 30 percent of China's gross domestic product, with high-risk products equaling almost $2.9 trillion.
The mechanism driving the recent surge of these high-risk shadow products is that they offer high yields – 11 percent to 14 percent, compared with 6 percent on loans and 3 percent to 4 percent on bonds according to Bloomberg – and can be recorded off balance sheets since they technically qualify as "investments" versus loans. The IMF pointed out that they are often used to circumvent requirements to set aside provisions against bad loans and allow balance sheets to showcase higher capital adequacy ratios.
China has been desperate to show economic stability and growth following several dramatic tumbles taken by the stock market. Indeed, according to the Financial Times, China's overall debt level has hit a record 240 percent of national GDP, making the risk offered by these shadow products palpable. James Daniel, the IMF's China mission chief, told the Financial Times that, while offering a short-term boost to economic prospects, healthy and sustainable growth for China depends on "the extent to which credit growth . . . is reined in."
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